Health Reform & Medical Malpractice – here we go again?
Much has been said about the impact of health care reform on the medical provider community. Some are predicting the wholesale change of American medicine, for good or for bad. Others take a much more conservative approach to guessing the effects of the ground breaking law. There is, however, some early consensus of how the reforms may drive more physicians to seek employment within hospitals systems. If this trend does in fact take place, there is a belief that it will drive more and more physician malpractice coverage into hospital-owned captives.
The logic behind this concept seems sound. A recent article in Business Insurance magazine noted the drive for hospitals to capture additional revenue from the new outcome-based reimbursement policies contained in the reform law. This drive will force hospitals to add medical staff to meet the expected rise in demand from the estimated 32 million newly insured US residents. In short, the healthcare system is not adequately staffed to meet the demand on this growing customer base. This will result in a dramatic increase in the need for these physicians to have Professional Liability Insurance. The question then becomes how best to provide that coverage.
The same article quoted several insurance professionals, all of whose opinions I respect, about how this trend will likely fuel the growth of the use of hospital captives to meet this coverage need. These folks note that larger hospital systems are already using their captives to meet the malpractice insurance needs of their medical staff, both employed and affiliated. They also mention expected growth in the use of risk retention groups and other alternative risk transfer (“ART”) vehicle. At the heart of all of these ideas is the expectation that captive insurance budgets will increase and an overall growth of the number of captives will rise.
As is often the case when confronted with fundamental change, there is a tendency for “group think” and the development of a new set of assumptions. While the findings of this article look accurate and sound for the moment, there are several critical issues that may well challenge or shatter these assumptions.
First, there is a very public and concerted effort on the part of the Republicans in the House of Representatives to repeal the health reform law. Despite their promise to replace it with another alternative, there is no expectation that this replacement will contain a provision creating 32 million new customers. In the absence of that possibility, the drive for additional medical staff may wane.
Second, even if this repeal effort fails or replacement law takes effect, the additional need and use of capital will likely be questioned. The ever-increasing pressure on governing boards and senior management could lead to an alternative deployment of that capital. Many sound arguments can be made about the use of additional funding for a captive. But fiscal realities and other demands for expenditures have a way of altering risk management budgets.
Third, Stark Rules, anti-kickback and other OIG HHS regulations remain a hurdle that cannot be lightly regarded or ignored. These laws that prohibit unfairly structured compensation plans may impact the captive arrangements as part of any employment of a physician. The federal rules against anti-kickback arrangements will also invite scrutiny of any new captive insurance arrangements for medical providers.
The exceptions to the regulatory issues that face the growth in the captive industry, “fair market value compensation”, etc. make the need for experienced and competent advice of great value in these uncertain times. At the risk of sounding self-serving, there are now a great number of experts available outside of the larger brokerage houses that were not available to buyers and risk managers even a decade or two ago.
At the heart of all of this is the absolute certainty in the fact that we do not know the ramifications of the law changes until we do. Without meaning to sound overly simplistic in my observation and opinion, the commercial insurance marketplace will not disappear with or without the onset of the health reform law. Captive insurance and alternative risk transfer option have long been available to the medical professional liability buyers. These risk transfer tools have a vital role to play in meeting the needs of medical providers and institutions. But each time I hear of their ascendency, coupled with the demise of the commercial market, I leap to a position of skepticism. And I believe that to be a healthy thing.
There are simply too many possible changes in the months and years ahead to draw definitive conclusions about the impact of the law of captive program growth and development. The planning and consideration of these tools as possible options is a worthwhile exercise that many providers should undertake. Just as with the complex and dynamic risk management programs that many health care institutions utilize, captive and ART programs need to be carefully evaluated. It is the organization that has the courage to go “against the grain” and prepare for multiple outcomes as a result of the law that I believe will have the most effective risk management program in both the near and long-term future.
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